The purpose of this article is to explore the opportunities virtual worlds offer for real-world innovations. By integrating users of virtual worlds into in interactive new product development process, companies can tap customers innovative potential using the latest technology. Connecting the emerging technology of virtual Worlds With a customer-centric perspective of open innovation allows unique and inventive opportunities to capitalize oil users' innovative potential and knowledge. The concept of avatar-based innovation serves as a point of origin to reveal these possibilities and represents the first attempt to systematically take advantage of virtual worlds for innovation management. In doing so, this paper argues that latest advances of information and communication technologies enrich the interaction process and can improve new product development process. Further, characteristics are presented that suggest that the digital environment is especially conducive to innovation and creative tasks. Based oil theoretical insights, the analysis of eight cases (Coca-Cola, Steelcase, Osram, Alcatel-Lucent, Toyota Scion, Endemol, Aloft, and Mazda), participant observation directly within the virtual world and 23 interviews with both managers and customers, this paper demonstrates how virtual worlds allow producers and consumers to swarm together with like-minded individuals to create new products and permits companies to find an audience to test, use, and provide feedback on the content and products they create. We highlight the active roles avatars can play throughout the whole innovation process, and demonstrate the opportunities of how manufactures and Customers could collaborate to innovate from idea to launch. A few pathfinding companies experiment with avatars as a source of innovation. Specifically, the initiatives of Osram, Steelcase, Mazda, and Toyota truly link the concepts of open innovation and virtual worlds to employ the interactive technology for new product development. These efforts are critically analyzed to examine the hypothesized potential of avatar-based innovation. The cases pinpoint practical implications and reveal both preconditions and challenges of this new approach to interactive new product development. The results suggest that in order to fully realize the potential of avatar-based innovation, companies need to create a compelling open innovation experience and consider the peculiarities of Virtual worlds.